Borrowers frequently turn to hard money lenders when in need of fast and flexible financing options. In many situations, a quick hard money loan may be the only way to rapidly secure the purchase of a property or pull equity from a piece of real estate. Hard money lenders understand they need to provide a fast closing to allow their clients to achieve their current objective.
How long does a hard money loan take to close? The answer will depend on the type of hard money loan needed, the circumstances of the loan and the borrower’s current position in the loan process.
This article will discuss various hard money loans types and how long it takes to close each loan in an ideal situation. Common issues that extend the time to close will also be listed. Before getting into the specifics of timing on closing, a quick word about hard money loan approvals.
How long is needed for a hard money loan approval?
Depending on the specific situation, the hard money loan request can be approved within 5 minutes or it may take multiple days for more complicated loan scenarios. Generally, the hard money lender needs to quickly look into the subject property and conduct a fast review of the borrower’s application.
To speed up the approval process the borrower should complete the hard money loan application with as much relevant detail as possible and submit any documents requested by the lender as quickly as possible.
Once the loan request has been approved the hard money lender can proceed with the loan. The time frames discussed in this article for closing a loan are general guidelines that can vary significantly depending on the actual lender and the borrower’s circumstances.
Non-Consumer Hard Money Loans – Close in as few as 2-3 days
Non-consumer (often referred to as business purpose) hard money loans can be funded the fastest as they have the fewest amount of regulations. If escrow is already open and a preliminary report has been prepared the loan can be funded within 2-3 days.
If escrow needs to be opened and a preliminary report needs to be prepared it will likely take approximately 5-6 days to fund the loan.
Non-consumer loans will have the same funding timeline whether the real estate being used as collateral is an investment property or a primary residence. The use of the borrowed funds is one of the factors to determine if the loan is considered a non-consumer or consumer loan. The other factor is the ownership of the property. A borrower that is an entity is generally not going to be considered a consumer loan.
The type of real estate used as collateral is irrelevant in the determination of a non-consumer vs consumer purpose loan. It is possible that a loan against a commercial office building could be for a consumer purpose while a loan against an owner occupied primary residence could be a non-consumer (or business purpose) loan.
Consumer Purpose Hard Money Loans – Close in as few as 10 days
Consumer purpose loans cannot be closed as fast as non-consumer hard money loans due to the various government regulations. The first step is to provide the borrowers with the Loan Estimate document. After 7 business days the Closing Disclosure can then be provided to the borrower. After another 3 business days the final loan documents can be signed.
*If the property being used as collateral for the loan is currently owner occupied, there will be an additional 3 day waiting period after the loan documents are signed.
Consumer purpose loan determination: The majority of the funds loaned to an individual are intended to be used for personal, family or household purposes.
Factors and situations which extend the time to close
– Preliminary report – If a preliminary report has not yet been ordered it may take a few days for the title company to prepare. Potential delay: 2-3 days
– Title issues – A preliminary report that comes back with any prior uninsured transfers will require time and effort from the title company to ensure the current owner of the property is able to encumber or transfer the real estate. Potential delay: 2-30+ days
– Clearing any liens or judgements – The discovery of any unknown liens or judgements can severely delay closing or even prevent the loan from closing at all. Liens and judgements will need to be paid off so the hard money loan can be recorded in the desired position. Potential delay: 1-30+ days
– Proof of Insurance – Proof of insurance for the property is necessary to close the loan. Potential delay: 1-2 days
– Pay off demands – If the subject property has existing loans that are being paid off with the new hard money loan, pay off demand requests must be submitted and received back from the lender prior to closing the loan. Potential delay: 1-5 days
– Overnighting documents to and from an out-of-town borrower – Potential delay: 1-2 days